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​Employee Shareholders – Is This The Future For Businesses?

Managing Partner

The new concept and status of Employee Shareholders (“ES”) was introduced in 2013. However, despite the Government’s hopes, there appears to be a lack of awareness of what benefits this status can bring for employers and employees.

This new ES status can be offered to existing employees and new recruits. It is essentially a trade-off for the employee, the employee receives at least £2,000 worth of shares in their employer’s (or parent company’s) business, in exchange for giving up certain employment rights. The rights given up include:

the right to claim unfair dismissal (except for automatically unfair reasons or
discriminatory dismissals);

the right to receive a redundancy payment;

the right to request flexible working (which is due to be extended to all employees
in June 2014); and

the right to request time off for training.

The ES status was expected to be popular with fast growing companies who wanted to reward their employees but did not necessarily have the financial resources to reward them with high salaries. What are the benefits though more generally?

Benefit for Employees

The main benefits of ES are the stake in the business and the tax advantage attached to these shares. Income tax and national insurance contributions however will have to be paid on the value of the shares above £2,000 at the time of issue.

Benefit for Employers

The main benefits for employers are two-fold:

to incentivise employees and give them a stake in the business to share in the success of the business; and

the security of knowing the employee has waived some of their important employment rights, restricting their recourse against the business in the future.

In view of the rights being given up, employers are required to pay for a prospective ES to receive independent legal advice before they sign up to an Employee Shareholder Contract.

The future for ES?

The Department for Business, Innovation and Skills (BIS) recently confirmed that they had only received 19 enquiries in relation to ES up to the end of December 2013. This is a far cry from the 20,000 to 40,000 people a year that were expected to become ES. Companies are not required to register or apply to the Government to set up ES. Therefore, simply because the number of enquiries has been low, does not automatically mean that businesses are not exploring or using ES as an alternative to the status quo.

ES does however remain a worthwhile option for many businesses as a way to retain valuable members of staff while having the security of knowing the employees have waived important employment rights.